Bill Ford Jr. never thought he’d see the day when Chrysler and General Motors would be forced into bankruptcy proceedings, when American automakers were in such peril that they had to look to the government for a bailout or when the entire auto industry was teetering on the brink of disaster.
Yet that’s exactly the depths to which the automotive industry sank over the past two years. As the worldwide economy slumped into a massive recession, the auto industry took one of the worst beatings of any area on the business landscape. Car sales slumped, auto component suppliers went bankrupt, Chrysler partnered with Fiat, and GM underwent a restructuring and downsizing that included the elimination of the Pontiac, Saturn and Hummer brands from its lineup.
As the executive chairman of Ford Motor Co., Ford — the great-grandson of company founder and American business icon Henry Ford — helps lead the one U.S. automaker that didn’t face bankruptcy proceedings or the humiliation of limping to Capitol Hill with its hands out. But that doesn’t mean Ford Motor Co. has emerged in 2011 unchanged or unchallenged by the events of the past two years.
In November, Ford gave a presentation at the Ernst & Young Strategic Growth Forum in Palm Desert, Calif., moderated by veteran journalist Charlie Rose. During the presentation, Ford talked about the recent past of the auto industry, where the industry is headed and what business leaders in other industries can learn from the lessons taught to automotive executives in the past couple of years.
“Every industry says they’re in a time of great change,” Ford says. “I suppose when you’re in it, you really feel like you are. But if you just look back a few years and look forward a few years, you’d be hard-pressed to find any era in any industry that will comprise more change.”
Do the right thing
When the other American automakers went to Washington seeking a federally funded lifeline, Ford figured his company would be at a disadvantage on the consumer sales front.
“We didn’t really know what a bankruptcy meant for us,” he says. “Would a customer buy a car or truck from a bankrupt company? What we didn’t realize at Ford was that it would resonate with the average person on the street that we didn’t take a bailout. We thought the average person would take the opposite stance, as in, ‘I have so much money wrapped up in this company, I’m going to buy their car or truck.’ We were worried that no one would buy from us, because they were now shareholders of sorts in GM and Chrysler.”
Instead, Ford received — and still receives — letters of support from small business owners and operators who admire Ford’s ability to get his company through the recession without the need for taxpayer dollars.
“The letters I got, and continue to get, are incredible,” Ford says. “Things like, ‘I’m a small business owner in Des Moines and no one would ever bail me out, and we’re really glad that you guys did it the right way.’ It really was heartwarming to see the response we got.”
But there was a cost for staying financially self-sufficient. Ford Motor Co. had to borrow against many of its assets to finance the research and development projects that allowed it to stay away from the jaws of bankruptcy and bailouts. The company amassed a large amount of debt, compared with GM and Chrysler, who emerged with clean balance sheets thanks to their sources of external funding.
But Ford believes a commitment to developing your business internally is one of the most reliable methods by which you can weather an economic storm. If you’re developing new products and services and finding other ways to enhance your business from within, you’ll become much more strategically diverse and self-sufficient as a company.
Ford’s emphasis on internal development is reflected in one of the first conversations he had with Alan Mulally, who succeeded Ford as the company’s president and CEO in 2006.
“One of the things I told Alan in our first meeting was, ‘There is no point in going through all of the pain we’re going to have to go through if we don’t keep investing in research and development and product development,’” Ford says. “He agreed completely. Now that we’re through and out the other side, most of our competitors, both domestic and foreign, slashed their spending during that period. Not only didn’t we do that, we actually accelerated some key areas. So when the clouds started to lift, we had the products, technology and features that made our vehicles very desirable.”
Ford and his leadership team set those wheels in motion even before Mulally came on board, working with bankers to get capital to pump back into the company’s development areas. From Mulally’s first day on the job, he began making the rounds to banks, trying to secure the loans necessary to make it all happen.
“It was a pretty dicey period,” Ford says. “You can imagine it was a pretty interesting conversation I had with the extended Ford family.”
To build the case to the other stakeholding members of his family, Ford needed to go back to the basics of good business communication from the executive level: Lay out your plan, be as forthcoming with information as possible, answer questions and seek feedback.
“I was very proud of the fact that, over the course of that discussion and over the next couple of years, when every day they’d pick up a paper that says, ‘Ford, GM and Chrysler aren’t going to make it,’ they all hung in there,” Ford says. “I had to continually sit down with them and say, ‘We do have a plan, you’re not seeing it yet, but it’s going to work.’ To their great credit, they all hung in there. And that really allowed the rest of the management team to not have to worry about the shareholders. They could focus on fixing the problem.”
The patience of the Ford family is being rewarded. Not only did the company emerge from the financial crisis without the need for federal money, but Ford says the company’s debt is being paid off much faster than either the company’s leaders or industry analysts anticipated.
“There was a disadvantage to doing it the way we did. But that disadvantage [of debt] is shrinking almost on a daily basis,” Ford says. “I wouldn’t trade places with anybody. I love where we are. I love our product, our direction and our freedom to operate without interference.”
Face the future
Before you can build something, Ford says you have to value it. You have to value the end product as a company and as a marketplace. The failure to adequately value the domestic manufacturing sector is something Ford believes the American business community will continue to face.
To increase the value of manufacturing businesses, Ford says it will take a combination of new, innovative ideas, intellectual partnerships, capital investment and an appreciation for how other countries handle their manufacturing bases.
“Manufacturing was kind of seen as yesterday’s news, brownfields, and we’re going to become a high-tech and service economy,” Ford says. “The problem is, the multiplier effects of those jobs versus manufacturing jobs is minuscule. To put it another way, every country that Ford does business in around the world will really do everything they can to help their manufacturing base. In our country, it was the opposite. The feeling in Washington, and even on Wall Street, was ‘Who cares? Shut your plants here, because we’re going to be a different kind of economy.’”
It’s taken the economic downfall of the past several years to increase awareness about the importance of maintaining a manufacturing base.
“Manufacturing has to change, and it is changing,” Ford says. “We’re making new things, high-tech things. The auto industry is one of the biggest users of high tech. We should now be building those high-tech components and clean energy components here in America. If anything good has come out of the last three years, it has been a recognition in Washington, and I think on Main Street, that manufacturing matters a lot, and we ought to have a strong manufacturing base. That recognition in and of itself is a great start.”
New avenues to maintaining the manufacturing base won’t be discovered without new ideas. And to that end, Ford sees a great deal of fertile soil in the nation’s universities. Whenever possible, the business sector needs to partner with and leverage the research capabilities of educational institutions.
“In terms of where we go forward, one of the great advantages we have in this country are our universities,” Ford says. “And we have great venture capital activity. We really need to take advantage of those great resources, both the venture capital mentality and the help that the universities can provide to all businesses in terms of R&D, partnering and I’m happy to say those are all vibrant pathways.”
But even with the external financial and intellectual avenues available to businesses, growth still boils down to what is going on under your own roof. You need to have the manpower and the brainpower to take advantage of the opportunities presented to you, which is why Ford promotes an innovative and entrepreneurial spirit among his employees.
“It’s something we struggle with every day,” Ford says. “I believe that now, we have the equation right at Ford. A few years ago, we didn’t. Part of it is you have to look at what the inhibitors are, because people really do want to be innovative. Most people want to try new things. But in our case, one of the things I did was do a deep dive into our product development system. We had a terrific R&D function, built with a couple of Nobel laureates. But somehow these great innovations weren’t making it into our vehicles.”
It demonstrated to Ford how a company’s leaders need to remove internal barriers to innovation — barriers that might exist within your company’s structure that you might not even realize.
“In our case, it was our finance system that created the barrier,” he says. “Whichever program it was — let’s say it was the new Explorer — wanted to adopt the new rear seat belt we just introduced. That program would have to take the cost of that entire innovation. So you wanted to be the second program to take the innovation, not the first.
“That is just one example of how you need to look at what the structural barriers to innovation are. People often blame the culture. People often say, ‘It’s a big company; nobody wants to take a risk.’ That can all be true, but there can also be structural inhibitors like the one that I just mentioned. You have to get those out of the way.”
The other critical component in building your business for the future is a motivated work force. You motivate employees by giving them avenues to pursue their ideas and removing roadblocks. But you also need to encourage the behaviors you want to see.
Ultimately, your internal culture needs to work in tandem with your outside resources. When a motivated work force can draw upon extensive financial and intellectual support, your company can have the tools to weather just about any circumstance that comes your way. There will still be adversity, but you’ll be prepared for it.
“You have to celebrate success,” Ford says. “That is a cultural thing. We do a lot of that, we have awards within the company for innovation. It’s great when you recognize externally. For instance, we’ve been the keynote at the consumer electronics show for the last three years. They never had an auto show up, much less give a keynote. We won the award last year for best in show. That is very reinforcing for our employees, when they’re recognized not just from an auto trade standpoint but something completely different that is seen as really cutting edge. That emboldens people to continually go further.”
Ford Motor Co. Executive Chairman Bill Ford Jr. touched on a number of topics during his November presentation at the Ernst & Young Strategic Growth Forum. Here are some additional nuggets of information from one of the world’s leading automotive executives:
Ford on where the auto industry is headed: When you think about this industry, for 100 years, we had a changeable line. The Model T had an internal combustion engine and was sold through dealerships. But now we sit on the threshold of some very interesting technology coming into vehicles on the safety side, on the data management side, in terms of real-time road information, where traffic is, where the parking spaces are, all of that will be available very fast.
Ford on the future of electric cars: If you think of electric as we know it today, there are three types. There is the hybrid, there is the plug-in hybrid, and there is the pure electric. To me, the pure electric is great because it is totally clean depending on how the power is derived, which is a whole separate discussion.
If you live in San Francisco and just need to drive around town, that’s OK. But if you all of a sudden want to drive down to Los Angeles, that’s an issue. Plug-in really alleviates that. With the plug-in hybrid, you can drive on the electric motor for the first number of miles, but once the electric runs out, it will then run as a conventional engine. So that gives you a lot more versatility.
Then the current hybrids, which don’t require anything to be plugged in, we keep refining those so the batteries become more fuel-efficient. So really, it will be a three-pronged approach in terms of electric. You’ll have all three of those in the mix.
Ford on international growth: By the year 2020, there are going to be 9 billion people in this world. If you look 10 years beyond that, there are going to be 30 cities of 10 million or more. Most of those will not be in the U.S. or Western Europe, and they don’t have the infrastructure to start shoving cars into those cities. So mobility starts to become a big issue. How are people going to move in big urban areas? The answer is not going to be to put two cars in every garage. So how do we help countries and municipalities solve the urban mobility issue. That will require us to define ourselves not as a car and truck company but as a mobility company.